Invest, Do Not Gamble
Money begets money. You can make money by investing money. But the question is where should you invest? Not in Las Vegas for sure. Wall Street is even worse. Few small investors make money on Wall Street. Only big guys, who can work the system, win there. Wall Street is the rich man’s world.
If you examine how America’s wealthiest people made their fortunes, you will discover they successfully invested in real estate. You, too, should invest in something tangible and; assets that you can see, touch and feel. Billionaire tycoons, such as Jorge Perez, Mortimer Zuckerman and Samuel Zell, got rich building thousands of apartments, renting pricey office space and holding vast chunks of undeveloped land.
Donald Trump’s early bets on large apartment complexes and hotels contributed to his estimated $3 billion net worth. Harry Macklowe paid the Trump Organization and Conseco $1.4 billion for General Motors Building in New York City in 2003. It is now worth $2.9 billion.
Out of 400 billionaires listed in Forbes, 82 made their money in real estate.
I know you are going to point out the real estate debacle that caused the Great Recession in 2008. Still investment in real estate is better than throwing money into computerized speculation, also known as research-based investment in securities. There are many investing opportunities, but none is as lucrative as real estate investment.
Unlike the stock market, investing in real estate offers real profit. Investing in real estate offers you direct control over the value of your investment. Paint the home and it is worth more; add a deck and the value goes up again. This simple truth escapes most investors and opens the door for you to make a far greater rate of return in real estate than a similar investment of capital would make in the stock market.
An investment of $100,000 in the stock market would allow you to control 2000 shares of a stock with a price of $50.00 a share. You control $100,000 of assets. The same $100,000 investment in real estate would allow you to buy ten houses, at 10 percent down on each home, with a value of $100,000 per home. You control $1 million dollars of assets, ten times the amount of assets controlled with an identical initial investment in the stock market.
Foreclosure homes are the best bet for an equity position. Foreclosed homes are less expensive to buy and less expensive to own on average than any other type of home purchase. But the question is where do you buy a house in this market? And, how do you decide what is the right price?
If you are an investor, you would obviously go where you get the highest rate of return on your investment. If you want to live in the house, price is secondary and; you need to take into consideration many other factors, such as your job and schools, if you have school-age children.
How do you figure out where you get the highest rate of return? Real estate investing should not be emotional. It involves working with numbers and using formulas to analyze those numbers before you buy. This investment property analysis will help you determine whether a property is a good deal. Here is how you should proceed step by step:
First, pick the house you like and price you can pay. Then ask a local contractor to check out the house to give you an estimate how much you have to spend to make it move-in ready condition. In fact, you should get at least three estimates. This will give you ideas how much you have to spend make a house ready to put back on the market for sale or rent.
Now you ask a Realtor to give you an estimate how much you would sell the property for if you fixed it up. Finally, you ask three local property management companies how much rent you could get if you wanted to rent out the house.
Once you have all these figures, calculate your rate of return.
[This is an excerpt from the book, "How To Strike It Rich In Real Estate," by B. Z. Khasru, which is available on Amazon.com.]
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